Chancellor Rachel Reeves is reconsidering an overhaul of Cash Isas ahead of the Budget, according to media reports this morning (15 October).
The reports suggest Reeves will look to cut the current tax-free allowance in half, from £20,000 to £10,000 per year.
This comes just days after City minister Lucy Rigby told the Investment Association dinner that savers could more than double their wealth by investing in the stock market.
There were previously rumours that Reeves might cut the allowance to £4,000.
Relief as Reeves makes no changes to Cash Isas
TISA warned that reducing the cash Isa limit would penalise savers and undermine trust in one of the UK’s most widely used savings products.
However, AJ Bell director of public policy, Tom Selby, said the chancellor is “absolutely right” to challenge the status quo on Cash Isas.
“The current fragmented market is overly complex and behaviourally illiterate, driving millions of people who could benefit from long-term investing to stick with cash, leaving them vulnerable to the impact of inflation, he added.
“Simplifying Isa by combining the cash and investment versions into a single product is the obvious long-term answer, making the system simpler to navigate and removing barriers between saving and investing.
“If the government wants to send a message that it is backing UK markets as part of a retail investing drive, scrapping stamp duty on UK stocks bought within Isas would be a straightforward, low-cost option that would be welcomed by retail investors and listed companies alike.”
Nick Henshaw, head of Intermediaries at Wesleyan Assurance Society, said: “The government is trying to build a culture of retail investing – something we welcome if it supports people’s long-term financial wellbeing. And it presents a real opportunity for intermediaries to once again underline the value of advice.
“If and when Cash Isa reform comes, savers may start exploring alternative solutions for their money that still provide the same tax benefits.
“Advisers can support this switch, which could include helping savers consider a Stocks and Shares Isa with specialist smoothed funds within them.
“These funds are available on certain platforms, and can help ‘smooth’ out sharp peaks and troughs in the investing journey – something likely to appeal to new investors who might be nervous about day-to-day volatility.”
